Modern slavery in the supply chain

30 Sep 2018

MENA

Creating a Compliant Organisation

Ethics and Compliance Consulting

Dispatches from the frontlines of corporate compliance: modern slavery in the supply chain

According to a recent estimate published by the Walk Free Foundation and the International Labour Organization (ILO), more than 40m people were estimated to be victims of modern slavery in 2016. This makes modern slavery one of the biggest human rights issues facing society and business today.

Emerging legislation, such as the modern slavery bill in Australia, and increasing public discourse on the issues highlight the vital role that companies must play in identifying and addressing modern slavery practices within their ever more diffuse supply chains. Control Risks recognises that it can be a daunting and complex task for companies to identify and prevent exposure to modern slavery in their operations, so we share below a case study in which Sarah, a compliance director in the Middle East, describes her journey to understand the risk of modern slavery within her business.

“We need more regulation,” said no compliance manager ever

[Sarah]: “As a risk and compliance professional within a professional services firm, making the case to the business that managing modern slavery risk is something we should do was initially a tough sell. Our approach to corporate governance recognises the risks and consequences of bribery and corruption, and money laundering. Sanctions risk is something we are also well aware of. But many within the business thought that modern slavery and worker welfare wasn’t something that we needed to focus on.

“I must admit that 18 months ago I also knew very little of the subject area or where we might be exposed. But that changed when we were involved in a project in Africa that had funding from the International Finance Corporation (IFC). This required the supply chain, which we were part of, to meet certain performance standards, including regarding labour and working conditions. Although we had recently prepared a statement on modern slavery to meet our legal requirements in the UK [namely the UK Modern Slavery Act 2015], the IFC Performance Standards prompted us to investigate our supply chain in more detail and beyond tier one. By coincidence, around this time we were also approached by customers in two separate territories who required us to comply with their supplier codes on human rights and worker welfare. This made us think more broadly about social impact issues and where we might be exposed. But the real catalyst was when a US competitor of ours was named in a media article for having poor labour practices in a project it was associated with. That definitely caught people’s attention.

“So, I began a journey to understand and map the risk of modern slavery in our own supply chains. I was surprised by what we found, in terms of the types of issues that came up and, more significantly, where we found them. We used open source information and reports by NGOs to focus our efforts, but information wasn’t available in many of the regions where we operate.

“Once we’d identified where we thought the external risks were, I realised that we needed something to help us audit the supply chain to verify our risk assumptions. In partnership with our corporate social responsibility team, we developed a set of worker welfare principles and standards, adopting many of the elements of IFC performance standard two and the Dhaka Principles, among others. This really took effect when the CEO and our board signed our policy on worker welfare, which now forms a key part of all our third-party agreements. This immediately set the tone from the top and suddenly I had managers from across the business asking for guidance and training on the new requirements.

“Then it was time to begin social audits. Initially, I tried to build these into our other scheduled compliance audits, but it quickly became clear that we needed support. We are now engaging a third party to assist not just with the social audit programme, but also to monitor and manage the risk status of suppliers across our operations, so that we can quickly address worker welfare issues that may increase our exposure to modern slavery risk.

“In the near future we are planning a supplier conference to share learning on our work to-date, building on the results of our social audits. We still have some way to go and it’s been a steep learning curve, but we are already seeing the benefits. A customer recently commented that part of their decision to retain us as a supplier was because of our understanding of our supply chain, which they believed not only reflected their own corporate ethics and values, but was also an indicator of how diligent we would be in our work with them. It is rare to get a compliment as a compliance manager, not least one who introduces more compliance requirements, but I’ll take that.”

So, what should businesses be thinking about when managing the risk of modern slavery?

Companies that wish to develop a methodology for managing modern slavery risk in their supply chain will need to consider the following.

The drivers for addressing modern slavery in their supply chain can come from a wide range of stakeholders.

An assessment of risk by sector or country is an important first step, but assumptions will need to be tested through supplier audits.

Modern slavery is an ethical and business risk issue. Focusing on the clear business benefits of addressing modern slavery will ensure broad support within the organisation.

Internal stakeholders and representatives from a company’s supply chain will benefit from training on the business’s approach to tackling modern slavery.

Third-party support may be required to gain expertise on local conditions or sector-specific risks.

Modern slavery is as complex as it as widespread. Companies that successfully manage the risk of modern slavery in their supply chains do so by working with their stakeholders and suppliers towards compliance with worker welfare standards. They provide training, share learning opportunities and work collaboratively towards resolving issues of non-compliance. This approach helps a company to reduce the risk to its business while meeting stakeholder expectations around social impact.

Entering a new market or adopting a new project is often challenging. It is not simply a question of being able to complete the project or not, but one of delivering genuine growth for the business and mitigating against any potential risks you might encounter.